A recession-era sellers' market

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Home buyers in Toronto do not appear to be taking the country's economic woes to heart. In 2009, more homes were sold and, on average, more dollars paid for each purchase than last year.

According to the fourth-quarter Housing Market Outlook report from Canada Mortgage and Housing Corp. (CMHC) released this week, resales completed through the MLS listing service in Toronto in 2009 are expected to total 82,000, up from 76,387 sales last year. Sales are then forecast to drop back to 78,000 next year.

"The strength in resale activity this year is a reflection of the aggressive interest rate cuts," note the report's authors. "This policy response worked better than anticipated in the Toronto housing market. Record low borrowing costs and price discounts accumulated during the winter months lured droves of buyers into the market."

According to CMHC, average prices are likely to continue to rise.

"Tight market conditions and a compositional shift in sales towards single-detached homes will push up average selling prices by more than 3% this year to $392,540," the report says. "Price growth will slow as the market returns to a balanced position, with the average selling price for 2010 rising about 2% from its current level to $412,000."

In the new-homes market, sales are expected to reach 28,500 units this year and remain more or less constant at 29,000 in 2010. According to CMHC, for the first time since 2006, low-rise houses will account for the majority of newhome sales in the GTA this year and next, climbing 37% to 17,000 this year and 15,500 next (still above the 2008 level). The strength now is in single detached homes, but as next year moves forward, sales will focus on semi-detached and townhouses, and high-rises again, as buyers look for less expensive properties in a slightly higher price and interest rate environment.

CMHC notes that while buyers have been coming out in force, many potential sellers had stayed on the sidelines waiting for a bottom to solidify. The report says new listings will decrease by 17% to reach 135,000, giving a sales-to-new listings ratio of just over 60% for this year.

"This will categorize 2009 as a sellers' market -- characterized by a rise in multiple-offer scenarios and shorter days-on-market averages," note the report's authors. "More supply is expected to come on the market next year as confidence amongst sellers improves and prices move higher."

CMHC forecasts a return of a balanced market for the Toronto area next year, with listings expected to climb to 150,000 units, which, combined with a lower level of sales, would culminate in a 52% sales-to-new-listings ratio.

On the national front, CMHC notes that the healthy pace of sales witnessed in the second and third quarters of this year is a result, in part, of delayed activity from the first part of the year and is therefore not expected to be sustained. Existing home sales are expected to reach 441,300 units in 2009 and rise to 445,150 units in 2010. The average national MLS price is forecast to be $312,950 in 2009 and $324,500 in 2010.

CMHC says housing starts are on their way to recovery and are expected to reach 141,900 for this year and to rise again next year to hit around 164,900.

"Demand for existing homes has rebounded since the beginning of the year," notes Bob Dugan, chief economist for CMHC in a release. "In addition, lower inventory levels characterize both the new-and existing-home markets. As a result, stronger housing demand will be reflected in higher levels of housing starts in 2010."

Even the moribund market south of the border showed signs of life in September. Pending home sales galloped past market expectations, advancing 6.1% on the August numbers, a hefty 19.8% rise on the same month last year.

"The report provides further confirmation that a pick-up in U.S. housing market activity is continuing to take root," notes Ian Pollick, economics strategist at TD Securities. "Given ... approximately 80% of pending home sales become existing home sales within two months suggests that the existing home sales data going forward should be quite robust."

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